It's great having a hand full of aces if that's the highest card in the deck. If the rules change and it reverts to being the lowest, you're in trouble. That's a lesson that Macau's casino operators have been learning during the long descent for gambling spending that followed the peak in Chinese New Year in 2014. Exposure to the territory's gaming tables used to be a cherished asset. These days it looks increasingly like a liability.
For an illustration of how things have changed, take a look at Las Vegas. MGM's vast Bellagio hotel, with its art gallery, Cirque de Soleil shows and almost 4,000 rooms, has been a bellwether for the city's pursuit of the mass market ever since it opened in 1998.
For the past five years, earnings before interest, tax, depreciation and amortisation (Ebitda) have trailed that from the 579-room MGM Macau, thanks in large part to high-roller rooms where HK$772 billion (S$136 billion) was wagered during 2014.
The tables have now turned again: The American resurgence is in line with a trend that's played out across the six major casino companies operating in Macau.
With no way to shield themselves against the slump in gambling volumes, the Hong Kong-traded casinos have suffered the sharpest drop in earnings. SJM's Ebitda have fallen 69 per cent since peaking in the six months through June 2014, while Galaxy Entertainment's are down 47 per cent.
Casinos with US listings or parent companies have other irons in the fire and have performed somewhat better. Melco Crown and Las Vegas Sands, which have resorts in Manila, Singapore and the US, are down 38 per cent, while Wynn Resorts has dropped 39 per cent.
MGM Resorts, the least Macau-exposed of the four US-traded companies, has slipped a mere 7.9 per cent.
While there have been some signs that Macau's prospects are improving, don't expect its difficulties to disappear any time soon. Hotel occupancy has been on the wrong side of 80 per cent for most of the past year, and pressure will only increase: Sands, MGM, Wynn and SJM plan to add over 8,000 rooms to the existing stock of 32,000 by the end of next year, which ought to depress room rates.
Meanwhile, casinos' investment plans were based on projections of robust gambling growth that's showing no signs of re-emerging, though revenues appear now to be stabilising after a Chinese government crackdown in 2014.
China would like the territory to re-orient towards family-friendly mass tourism. Vegas carried out that switch years ago, and gambling accounts for only 35 per cent of revenue these days.
Investors willing to bet that casino destinations can make the switch from sin city to convention playground need not wait for Macau's plans to come to fruition. They may be better off focusing on the town that's already performed that manoeuvre.
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